Back in mid-October, the Social Security Administration (SSA) announced that the wage base, that's the amount of each worker's earnings that are subject to the Social Security portion of payroll withholding, would increase to $128,700.
This week, the SSA revised that number downward.
The new amount of income from which Social Security taxes will be withheld is $128,400.
The SSA says it made the adjustment after getting corrected W-2s later in October that weren't figured into the original 2018 wage base announcement.
"Approximately 500,000 corrections for W-2s from 2016 resulted in changes for three items based on the national average wage: the 2018 taxable maximum, primary insurance amount bend points — figures used in the computation of Social Security benefits — and family maximum bend points," according to the SSA press release announcing the revision.
Less income subject to tax: The new $128,400 amount that will be used to determine payroll withholding will take effect on Jan. 1, 2018.
The lowered income level is good news for next year's higher earners. It means that instead of the original $128,700 that was announced in October as subject to the Social Security segment of FICA, or the Federal Insurance Contributions Act, $300 less will be used to compute withholding.
Here's the math on what this change means.
Under FICA, payments totally 15.3 percent of a worker's earnings are paid toward Social Security and Medicare.
Employers and employees each pay half of the 12.4 percent Social Security tax portion. For workers in 2018 under the original wage base, that would have been 6.2 percent of $128,700 or $7,979.40. That same amount would have been matched by the worker's boss.
With the change, the maximum withholding from an employee's income for Social Security is $7,960.80 ($128,400 x 6.2 percent). That also will be matched by employers.
OK, the wage base change difference is only $18.60 less in tax, but that's $18.60 you will have if you're a worker making up to or more than the applicable six figure income subject to the Social Security payroll tax.
I'd happily take that almost $20 to pay for three of my favorite venti Frappuccinos or a Tex-Mex food truck lunch for the hubby and me.
No income cap on Medicare: The other portion of the overall 15.3 percent payroll tax is the withholding amount that covers your future Medicare costs.
In this case, this is another 1.45 percent of your wages withheld from your checks and also paid by their employers for the federal health care coverage.
However, there is no limit on wages that are subject to this combined 2.9 percent payroll tax.
So no matter how much more than $128,400 you make next year, the Medicare payroll tax will keep coming out of your pay.
No worries for current recipients: And just in case you collect Social Security or, like me, have a relative who does and freaks any time the agency is in the news, don't worry.
The wage base change for next year has absolutely no effect on current beneficiaries, says the SSA. Any changes in benefit computations based on the new data will only apply to people who initially become eligible for Social Security benefits in calendar year 2018.
And in case you've bookmarked this year's inflation adjustments series — a table of contents is in the first post on income tax brackets — I've also updated the 2018 inflation adjustments item on the Social Security wage base with this new data.
You also might find these items of interest:
- Some of VP Joe Biden's Social Security is taxed. Is yours?
- Tax-advantaged ways grandparents can give to grandchildren
- Preparing physically, emotionally and financially for retirement